Role of Blockchain in the Insurance Industry

One of the industries that can benefit from the use of blockchain is insurance. In this article, we will look at what blockchain insurance has to offer. Insurance has always been a difficult task for anyone experiencing a problem, and we are hopeful that blockchain insurance will change the entire landscape. Many blockchain insurance startups are working to improve the insurance experience for end users and businesses that handle people's insurance.

 

Few blockchain insurance startups are focusing on an entirely novel approach, whereas others are attempting to augment and improve existing insurance processes.

 

What is Blockchain and how does it work? 

 

Blockchain is a distributed, immutable ledger that makes it easier to record transactions and track assets in a business network. A tangible asset (a house, car, cash, or land) can be intangible (intellectual property, patents, copyrights, branding). A blockchain network can track and trade almost anything of value, lowering risk and costs for everyone involved.

 

Information is the lifeblood of business. The faster and more accurate it is received, the better. Blockchain is ideal for delivering that information because it provides immediate, shared, and completely transparent data stored on an immutable ledger that can only be accessed by network members with permission. A blockchain network can track orders, payments, accounts, and production, among other things. And, because members have a unified view of the truth, you can see all aspects of a transaction from start to finish, giving you greater confidence as well as new efficiencies and opportunities.

 

Each transaction is recorded as a "block" of data as it occurs.

 

These transactions demonstrate the movement of an asset, which can be tangible (a product) or intangible (a service) (intellectual). The data block can store any information you want, including who, what, when, where, how much, and even the condition — for example, the temperature of a food shipment.

 

Each block is linked to the ones that come before and after it. As an asset moves from one location to another or ownership changes hands, these blocks form a data chain. The blocks confirm the exact time and sequence of transactions and are securely linked together to prevent any block from being altered or inserted between two existing blocks.

 

Transactions are linked in an irreversible chain called a blockchain.

 

Each additional block strengthens the previous block's verification and thus the entire blockchain. This makes the blockchain tamper-evident, providing the critical strength of immutability. This eliminates the possibility of tampering by a malicious actor — and creates a trusted ledger of transactions for you and other network members.

 

Also Read | Types of Blockchain

 

Role of Blockchain in the Insurance Industry: 

 

Let's look at the current state and pain points of the insurance industry to better understand why blockchain has such huge potential.

 

To begin with, the insurance industry is notoriously slow to adopt new technologies. In comparison to other financial industry sectors, such as banking, which actively capitalizes on innovative technologies, the business model and tech stack of insurance have remained largely unchanged for many years.

 

The insurance industry is riddled with inefficiencies due to its reliance on paper-based information sharing, an abundance of manual processes, and an outdated tech stack. Given that the insurance industry must effectively coordinate a diverse set of parties, the manual approach to information exchange exposes the traditional insurance framework to numerous points of failure. 

 

Furthermore, insurers rely heavily on intermediaries to enforce contract terms, making claims processing slow and inefficient. So, how does blockchain address these issues?

 

Smart contracts are programs that execute themselves automatically when events specified in a contract between multiple parties occur. Because the events that trigger contract execution can be external, smart contracts are particularly valuable technology for insurance. IoT sensors installed in homes, for example, can detect gas leaks and initiate automatic claims processing.

 

Smart contracts are stored and validated on the blockchain, no party can change the terms of the contract, and all parties have access to a single source of truth.

In this way, blockchain provides insurance providers with a one-of-a-kind opportunity to exchange data effectively and securely, lowering costs while also assisting with risk management and customer satisfaction.

 

Some companies around the world have already begun to use blockchain technology in insurance for day-to-day operations. While decentralized finance (DeFi) is revolutionizing financial services, some existing insurance companies are using blockchain to improve their existing practices. Some of the companies have been briefly discussed below:- 

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Companies using Blockchain for Insurance 

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1. Blue Cross:

 

Blue Cross, based in Hong Kong, uses blockchain to prevent fraud and expedite insurance claim processing. The platform verifies data in real-time, eliminating the need for insurers and healthcare providers to reconcile claims data.

 

2. Lemonade:

 

Lemonade, based in New York, offers insurance to homeowners and renters by combining artificial intelligence and blockchain. When a customer files a claim, Lemonade uses smart contracts to instantly verify the loss. If a claim is approved, the AI and blockchain system pays the claimant right away.

 

3. FidentiaX:

 

Singapore-based FidentiaX is a marketplace for tradeable insurance policies. On the blockchain, users can buy and sell their policies. Users can purchase insurance policies from others and access all relevant data in one place. ISLEY is a product developed by the company that allows customers to get detailed overviews of policies, receive premium notifications, and view records of their history.

 

4. IBM:

 

IBM is making its blockchain technology available to insurers, streamlining recordkeeping and enabling instant updates following transactions. According to the company, users reduce management costs and improve customer satisfaction.

 

Importance of Blockchain in Insurance:

 

Blockchain has had a significant impact on such fraudulent scenarios in the insurance industry. Technology has the potential to change the way insurance companies operate. It can increase transparency, adhere to regulations, and create excellent products and markets. Here are some exciting potential benefits discussed below:- 

 

1. Enhances trustworthiness:

 

One of the most important advantages of Blockchain is its trustworthiness. The ability to incorporate consensus algorithms allows for audibility and immutability.

 

The features simplify the creation of smart contracts on the blockchain, which benefits the insurance industry. Furthermore, because blockchain is an immutable ledger, smart contracts enable transactions that are timely, transparent, and trustworthy.

 

Blockchain can provide an entire proof-of-insurance ledger, eliminating the need for your company to rely on one-time state databases.

 

2. Make it easier to operate: 

 

Insurance companies operate in highly competitive environments where retail and corporate customers expect the best value for money and an outstanding online experience.

 

With the low cost of smart contracts and their transactions, many insurance companies can now offer more competitive products to penetrate underinsured markets.

 

3. Audit trails that are tamper-proof:

 

Insurance can be conducted through blockchain accounts, allowing for greater automation and more reliable audit trails.

 

Insurers can expect transformative benefits from Ethereum's smart contracts and decentralized applications.

 

4. Allows for greater automation:

 

Transparent transactions are made possible by smart contracts. They can also help to streamline the insurance process. As the blockchain executes on smart contract terms, the entire insurance claims process may become much smoother.

 

What's more exciting is that it does so automatically, making automation a huge benefit to insurance. Finally, by lowering administrative costs, blockchain can save insurance companies time, effort, and money.

 

With such excellent benefits, the insurance industry can look forward to capitalizing on the disruptive nature of new technology to reclaim its dwindling glory.

 

Also Read | Different Types of Insurance

 

How can Blockchain Help With Fraud detection?

 

Insurance fraud is a major issue that both organizations and end users want to see resolved. With insurers not truly committed to resolving the fraud problem. Their approach to dealing with fraud has always been less than ideal. However, anti-fraud technology is widely used by insurers, with up to 95% of them employing it.

 

In short, given the sheer complexity of the insurance industry, the standard method fails to prevent fraud. The majority of the time, a visibility problem arises when information is sent between peers such as insurers, reinsurers, and claimants. The paperwork also allows criminals or fraudsters to alter the information and thus commit fraud.

 

Due to the transparency it provides, blockchain can help to solve the fraud problem. Better coordination among insurers means that fraud can be effectively combated. The distributed ledger technology ensures that blockchain transactions are permanent.

 

This means that no data can be changed after it has been written, which is the foundation of data security. Claims can now be stored on the distributed ledger, making it simple for insurers to verify the data when the time comes.

 

To improve fraud detection, major insurers publicly collect data and then predict fraudulent activities. Patterns are revealed by the data, which helps to improve recognition. The challenge, however, is to share sensitive data across organizations that have always existed, which complicates the entire process of complex 

 

The goal is to create a fraud detection platform that can work across networks while also protecting privacy. Insurers can do just that thanks to blockchain technology. It allows for the prevention of fraud and increased coordination among insurers, both of which will benefit indefinitely.

 

Blockchain in insurance can now be a game changer. Blockchain has compelling use cases, and it has the potential to transform the way physical assets are managed, tracked, and insured digitally. It's time to leverage blockchain for incredible benefits like increased cost efficiency, reduced risk, and more. On the insurance roadmap, blockchain is here to stay

 

Although it is still in its infancy, given the market's readiness to embrace newer models and protocols, blockchain is here to stay. The number of successful blockchain use cases in insurance makes it a strong industry disruptor with the potential to revolutionize how insurance is done. It's not difficult to envision a future blockchain insurance industry.

 

However, much work remains to be done before the insurance industry can fully realize the benefits of blockchain.